UK government bond yields soared to levels not seen in decades on Thursday, with the 10-year gilt yield reaching 4.90%—its highest since July 2008—and the 30-year yield climbing to 5.40%, a peak last recorded in August 1998. Simultaneously, the British pound slumped to a 14-month low against the US dollar, dipping below $1.23 amid mounting economic concerns.

The sharp rise in yields and currency depreciation has prompted comparisons to the market turmoil during Liz Truss’s brief premiership in 2022. However, analysts remain divided over whether this represents a similar crisis or temporary turbulence driven by inflationary and fiscal challenges.

“Capital flows are moving out of the UK, pushing bond yields higher and the pound lower,” said Alejandro Cuadrado, an analyst at BBVA. He warned that if fiscal concerns persist, the situation could become a “mini Truss moment.”

Drivers Behind the Sell-Off

The gilt market is under pressure from both domestic and global factors. Persistent inflation, increased government spending, and a broader global bond sell-off have contributed to rising yields. Long-term gilts, such as the 30-year, have been particularly affected, reflecting investor worries about inflationary risks and the sustainability of public finances.

The British pound has also faced significant pressure. “The gilt market has proven to be the Achilles’ heel for sterling,” said Chris Turner, an analyst at ING. He added that widening gilt spreads have led investors to reduce their positions in the currency.

Globally, US Treasury yields have surged, with the 30-year yield reaching 4.95%, near its highest levels since 2007. Markets are reacting to inflationary fears stoked by the incoming administration of Donald Trump, whose policy agenda includes sweeping tariffs and tax cuts that could drive deficits higher.

Is This a Repeat of the ‘Truss Moment’?

While the rise in gilt yields has sparked memories of the market panic during Truss’s tenure, analysts note key differences. Unlike the sudden spiral triggered by unfunded tax cuts in 2022, the current rise in yields has been more gradual.

“Demand from foreign buyers remains strong, reducing the risk of a repeat of 2022’s liquidity crunch among pension funds,” said Turner.

Nonetheless, sticky inflation and government spending continue to weigh on investor sentiment. Fitch Ratings recently flagged uncertainty in the UK housing market, adding to the cautious outlook.

Looking Ahead

Analysts see limited room for further increases in gilt yields, although inflation and higher US rates could maintain some upward pressure. The Bank of England faces a difficult balancing act, with markets pricing in rate cuts while inflation remains elevated.

For the pound, further declines are possible, though a fall below $1.20 appears less likely, Turner noted. As economic uncertainty persists, the trajectory of UK markets remains under close scrutiny.

Retailers in the eurozone ended 2024 on a subdued note, with data signaling limited growth and a challenging outlook for 2025. According to Eurostat figures released Thursday, the seasonally adjusted volume of retail trade in the euro area rose by a mere 0.1% in November compared to October.

The modest uptick followed declines of 0.3% in October and a 0.5% gain in September, underscoring the sector’s struggles. Across the European Union, retail trade fared slightly better with a 0.2% increase in November, after a 0.1% dip in October and a 0.4% rise in September.

Despite these figures, retail sales remain well below their November 2021 peak and the pre-pandemic trend, said Andrew Kenningham, chief Europe economist at Capital Economics. He characterized the post-pandemic recovery as “disappointing,” attributing sluggish growth to lingering effects of COVID-19 disruptions and the war in Ukraine.

The eurozone grappled with an inflationary peak in 2022, driven by supply chain disruptions and energy price shocks. Although inflation has eased and the European Central Bank (ECB) has embarked on a rate-cutting trajectory, tighter fiscal conditions continue to weigh on consumer spending.

Key Trends in November
November’s modest growth was supported by a 0.8% rise in automotive fuel trade and a 0.1% increase in food, drink, and tobacco sales. However, sales of non-food products (excluding fuel) declined by 0.6%, highlighting uneven performance across sectors.

Among member states, Cyprus recorded the strongest monthly retail trade growth at 2.3%, followed by Bulgaria (1.3%), and Denmark and Latvia (both 1.1%). Conversely, Belgium experienced the steepest decline at -2.4%, with Germany and Spain both reporting -0.6%, and Poland and Finland recording -0.2%. France saw a modest 0.3% rise.

Challenges and Outlook for 2025
Looking ahead, economists predict a modest recovery rather than a robust rebound in retail trade. Rising real incomes, moderate employment growth, and falling interest rates are expected to provide some support for consumption. However, the pace of real income growth is projected to slow in 2025, dampening prospects for a strong recovery.

“November’s weaker retail sales are more due to less willingness to spend than a lack of purchasing power,” said Peter Vanden Houte, chief economist at ING Belgium. He attributed the cautious consumer behavior to fears of higher unemployment and geopolitical uncertainties.

The outlook remains clouded by political challenges in France and Germany, as well as potential policy shifts under the new U.S. administration. Economists agree that meaningful acceleration in retail trade is unlikely before the second half of 2025, as restructuring and layoffs in European manufacturing continue to weigh on confidence.

For now, eurozone retailers face a slow path to recovery, with significant headwinds still in play.